a. Private Activity Bonds

SAFETEA-LU amended Section 142 of the Internal Revenue Code to permit the issuance of private activity bonds ("PABs") to finance privately developed and operated highway and freight transfer facilities. This change to the Internal Revenue Code allows highway and freight transfer facilities to be developed, designed, financed, constructed, operated and maintained by the private sector as PPPs, while maintaining the tax-exempt status of the bonds. PABs are issued by a public entity, which acts as a conduit issuer for the private developer. The private developer is deemed the borrower and responsible for repayment. The law limits the total amount of PABs that may be issued for highway and freight transfer facilities to $15 billion and gives the Secretary of Transportation responsibility to allocate the $15 billion among qualified facilities. These PABs are not subject to the state volume caps that typically apply to other types of private activity bonds.

The authorization of PABs in SAFETEA-LU reflects the desire of Congress to increase private sector investment in U.S. transportation infrastructure. Providing the private sector with access to tax-exempt interest rates helps level the playing the field between public and private sector sources of capital. Increasing the involvement of private investors in highway and freight transfer facilities generates new sources of money, ideas, and efficiency. By encouraging private investment, the PABs program also reduces state and local reliance on Federal transportation grants and fuel taxes, providing new capacity and capital improvements to existing infrastructure at significantly less cost to the taxpayer.

The PABs program for highway and freight transfer facilities has proven to be a valuable investment resource for innovative transportation capital projects. USDOT awarded an allocation of up to $700 million for a private firm to bring more than 800 of Missouri's lowest-rated bridges to satisfactory condition and keep them in that condition for 25 years. A $980 million PABs allocation was awarded by USDOT to a group of private companies that is going to build the Port of Miami Tunnel project, a new tunnel connecting the Port of Miami on Dodge Island with Watson Island and I-95 on the Florida mainland. USDOT also allocated $600 million for the concessionaire that will build and operate the Knik Arm Crossing Project in Anchorage, Alaska, a proposed bridge that will connect Anchorage with the Matanuska-Susitna Borough on the far side of the Knik Arm of the Cook Inlet.

A group of private companies used PABs authority allocated by USDOT to issue $589 million of PABs for the Capital Beltway HOT Lanes Project. This project will introduce congestion pricing to one of the busiest corridors in the Nation. USDOT also allocated $288 million of PABs authority to TxDOT to make available to the winning bidder on the IH-635 managed lanes PPP project. With these and other innovative projects moving forward with PABs, USDOT expects the $15 billion national volume cap to be exhausted by 2009. This expectation is based on the applications that are currently being reviewed and on preliminary discussions with applicants that expect to submit applications. An increased national limitation of PABs authority in the next surface transportation reauthorization bill would help to ensure that PABs continue to play a vital role in providing for transportation infrastructure.

PABs Allocations as of June 2008